The document summarizes and comments on three papers related to the impact of financial constraints on productivity. The papers find both positive and negative impacts of financial constraints. At the firm level, constraints negatively impact incumbent firms' productivity but positively impact productivity through cleansing effects. At the industry level, constraints have an inverted U-shaped impact on productivity. At the country level, constraints primarily influence productivity through cleansing mechanisms, though the relationship is complex and circular between productivity, interest rates, and other factors.

1. Comments on three papers
Session 2: Financial frictions and within firm performance
BIS-IMF-OECD Joint Conference
Weak productivity: The role of financial factors and policies
10-11 January 2018
OECD, Paris
Gilbert Cette
Banque de France
Université d’Aix-Marseille

2. Content
2
1. Three papers
Paper from Romain Duval Gee H. Hong and Yannick Timmer (DHT)
Paper from Manarasi and Pierri (MP)
Paper from Reint Gropp, Joerg Rocholl and Vahid Saadi (GRS)
2. Two questions
3. Two opposite impacts of financial constraints
4. Financial constraint impact at country level

3. 1. Three papers
3
- Romain Duval Gee H. Hong and Yannick Timmer (DHT thereafter)
« Financial Frictions and the Great Productivity Slowdown »
- Francesco Manarasi and Nicola Pierri (MP thereafter)
« Credit Supply and Firm Productivity Growth »
- Reint Gropp, Joerg Rocholl and Vahid Saadi (GRS thereafter)
« The Cleansing Effect of Banking Crisis »
The three papers are empirical
They deal with the topic of the productivity impact of financial constraints
Three very interesting and thought- provoking papers
Robust but contrasted results

4. 1. Three papers
Paper from Romain Duval, Gee Hong and Yannick Timmer (DHT)
4
 The approach
oMultinational firm level data (ORBIS), 11 advanced economies
oCompares productivity growth change from 6 years before to 6 years after
the 2008 financial crisis
oOriginal financial vulnerability measurement: share of debt prior to the
crisis that was scheduled to mature during the crisis
 Main results
oHigher financial vulnerability -> larger TFP slowdown
oLarger TFP decline for firms facing a more severe tightening of credit
conditions (ΔCDS from 7 days before to 7 days after LB collapse, country
and firm/bank level)
oThrough (at least partly) intangible capital investment
 Takeaway
oTFP detrimental impact of financial constraints
oCould have contributed to post crisis TFP slowdown

5. 1. Three papers
Paper from Francesco Manarasi and Nicola Pierri (MP)
5
 The approach
oItalian firm/bank level data, over 1997-2013
oEstimates impact of credit supply shocks on TFP growth
oOriginal credit supply shock using 2007-2009 interbank market freeze
 Main results
oCredit crunch -> TFP slowdown
oLarger TFP decline for firms with larger debt
oLarger TFP decline if banks are more exposed to interbank market freeze
oDifferent channels: IT investment, innovation, management practices…
 Takeaway
oTFP detrimental impact of financial constraints
oCould have contributed to post crisis TFP slowdown

6. 1. Three papers
Paper from Reint Gropp, Joerg Rocholl and Vahid Saadi (GRS)
6
 The approach
oUS metropolitan statistical areas (MSA) data – about 260 MSA – 2007-2014
oOriginal credit constrainst measurement: regulatory forbearance on
distressed banks during the crisis
oOriginal instrument: distance from Washington DC
oEstimates impact of credit constraints during the crisis (2007-2009) on
. Firm cleansing and job destruction during the crisis
. Firm creation and employment creation after the crisis (2010-2014)
 Main results
oMore credit constraints during the crisis
-> larger cleansing and more job destruction during the crisis
-> more firm and employment creation after the crisis
-> higher productivity growth after the crisis
 Takeaway
oTFP favorable impact of financial constraints

7. 2. Two questions
7
 Results apparently contrasted
oPaper DHT and MP: TFP detrimental impact of financial constraints
Through IT investment, R&D, innovation, management…
oPaper GRS: TFP favorable impact of financial constraints
Through cleansing mechanisms, and consequently factor allocation
Who to believe and do we have to choose?
 If the two mecanisms coexist, which one dominates at the macro level?
+ +
?
- -
Financial
constraints
cleansing
mechanisms
Incumbent
firm
productivity
Global
productivity
growth

8. 3. Two opposite impacts of financial constraints
8
 Large research program at the Banque de France, on these questions
Both on firm level, industry level and country level data
 On firm and industry level data
P. Aghion, A. Bergeaud, G. Cette, R. Lecat and H. Manghin (ABCLM)
oThe two types of impact of financial constraints appear significant on firm
level data
. Cleansing mechanisms: positive impact on productivity
. Incumbent firms: negative impact on productivity
oFrom this, non-linear productivity global impact of financial constraints on
industry level data

9. 3. Two opposite impacts of financial constraints
9
 On firm and industry level data (ABCLM)
Productivity impact of financial constraints at the industry level:
An inversed U curve

10. 3. Two opposite impacts of financial constraints
10
 On firm and industry level data (ABCLM)
Productivity impact of financial constraints at the industry level:
An inversed U curve
From high financial dependence industries
Estimate results, 17 industries over 2003-2014

11. 4. The financial constraint impact at the country level
11
 On country level data
A. Bergeaud, G. Cette and R. Lecat (BCL)
oCircular relation between TFP growth and real interest rates
. Real interest rates + factor quality + (institutions, technology) => TFP
growth
Consistent with an abundant literature, see among numerous papers
G. Cette, J. Fernald and B. Mojon (2016)
. TFP growth + other factors (demography …) => GDP growth => real
interest rates
Consistent with a abundant literature, see among numerous papers
M. Marx, B. Mojon and F. Velde (2017)
oWithout technology shocks and adapted institutions, risk of Secular
Stagnation

12. 4. The financial constraint impact at the country level
12
 On country level data (BCL)
oLong term TFP slowdown in all areas
Average annual growth rate of TFP (In %)
Smoothed indicator (HP filter, λ = 500) - Whole economy
Source: Bergeaud, Cette and Lecat (2016), www.longtermproductivity.com

13. 4. The financial constraint impact at the country level
13
 On country level data (BCL)
o Long term real interest rate decline in all areas
Real long-term interest rate (In %) - 10-year sovereign bonds
Source: OECD

14. 4. Financial constraint impact at country level
14
 On country level data (BCL)
oCircular relation between TFP growth and real interest rate
oCleansing mechanisms dominate
Estimate results on 17 countries and annual data over 1950-2016
(control variables omitted)
Explained variable XPGF TXR XPGF TXR
Method Arellano-Bond Lewbel
∆𝒑𝒈𝒇𝒕−𝟏 0.266*** 0.279***
[0.049] [0.047]
∆𝒑𝒈𝒇𝒕 0.061 0.304**
[0.059] [0.144]
𝑻𝑿𝑹 𝒕 0.089*** 0.138***
[0.024] [0.032]
𝑻𝑿𝑹 𝒕−𝟏 0.682*** 0.653***
[0.052] [0.044]

15. 4. Financial constraint impact at country level
15
 On French firm level data
oThe global productivity slowdown comes from a growing productivity level
dispersion between firms, itself coming from lower cleansing
French firm productivity level inter-decile and inter-quartile dispersion
(D9-D1)/(D9+D1) and (Q3-Q1)/(Q3+Q1)
G. Cette, S. Corde and R. Lecat (2017) (CCL)